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chapter seventeen
Strategy implementation and internal marketing
You want to create the same buy-in to the products, services, and philosophy of your organization among your employees as you would hope for among customers.
Susan Drake et al. (2005)
A company is either customer-focused from top to bottom, or it simply is not customer- focused . . . To become genuinely customer- focused you have to be prepared to change your culture, processes, systems and organization.
George Cox, Chief Executive, Unisys Ltd, June 1995
Introduction
This chapter continues our consideration of marketing strategy, by evaluating the issue of implementation and particularly the role of internal marketing in enhancing and sustaining a company’s ability to compete. There are several different models of internal marketing which overlap to a degree and require clarification (since as a consequence there are a number of different roles that internal marketing can play in a company’s strategic development in different situations). Linkages between internal marketing and certain of the issues we have examined earlier include the following:
l Much new thinking and practice in strategic marketing is concerned with managing relationships: with the customer (see Chapter 14), and with partners in strategic alliances (see Chapter 16). However, a further aspect of relationship management and relationship marketing is the relationship with the employees and managers,
upon whose skills, commitment and performance the success of a marketing strategy unavoidably relies. This is the internal market inside the company.
The logic being followed by an increasing number of companies is that building effective relationships with customers and alliance partners will depend in part (and possibly in large part), on the strengths and types of relationships built with employees and managers inside the organisation. The goal may be for all employees to become ‘brand ambassadors’ – brand owners such as Unilever, SABMiller, Cadbury Schweppes and BT are among those with established internal marketing excellence programmes to pursue this goal (Brand Strategy, 2006). At Honda, for example, all new staff receive the ‘Book of Everything’
containing the normal employee handbook information but also extensive explanation of the Honda brand philosophy – ‘spreading “Honda-ness” and turn- ing people into brand ambassadors’ (Croft, 2007). In some companies, the emphasis has turned from internal communications to internal branding to build employee understanding and buy-in to corporate brand values – British Petroleum uses a behaviour reward scheme, based on its ‘new spirit of radical openness’, and a ‘discuss, discover, and define’ programme to show employees how to turn its brand values into actions that improve performance (Dowdy, 2005).
l We have emphasised the importance of competitive differentiation to build market position. Yet truly exploiting a company’s potential competitiveness and its capabilities in reality is often in the hands of what Evert Gummesson (1990) has called the ‘part-time marketers’, i.e. the people who run the business and provide the real scope for competitive differentiation. Indeed, in some situations, the employees of a company may be the most important resource that provides differentiation. Certainly, research at Northwestern University found internal marketing to be one of the top three determinants of a company’s financial performance – companies with better integration of internal and external marketing report better financial results (Chang, 2005).
l In a similar way, the growing emphasis on competing through superior service quality relies ultimately on the behaviour and effectiveness of the people who deliver the service, rather than the people who design the strategy. When the Hampton Inn hotel chain in the US was ready to roll out 122 changes to its prod- ucts and services, its new marketing campaign was ‘Make It Hampton’, but was aimed at hotel managers and employees, not guests. Building internal brand enthusiasm and employee motivation involved a giant model of a hotel to show- case the improvements and allow employees to experience them, motivational conference calls, focus groups, targeted newsletters and training materials.
The end of the first phase of ‘Make It Hampton’ saw a 5 per cent increase in market share, and a similar growth in the percentage of highly satisfied customers (Drake et al., 2005).
l Indeed, increasingly it is recognised that one of the greatest barriers to effective- ness in strategic marketing lies not in a company’s ability to conceive and design innovative marketing strategies or to produce sophisticated marketing plans, but in its ability to gain the effective and enduring implementationof those strategies.
A route to planning and operationalising implementation in strategic marketing is
‘strategic internal marketing’ (Cespedes and Piercy, 1996).
These applications suggest that, depending on the particular circumstances, the internal marketing process might include the following types of activity and programme:
l Gaining the supportof key decision-makers for our plans – but also all that those plans imply in terms of the need to acquire personnel and financial resources, possibly in conflict with established company ‘policies’, and to get what is needed from other functions like operations and finance departments to implement a marketing strategy effectively.
l Changing some of the attitudes and behaviour of employees and managers, who are working at the key interfaces with customers and distributors, to those required to make plans work effectively (but also reinforcing effective attitudes and behaviour as well).
l Winning commitment to making the plan work and ‘ownership’ of the key problem-solving tasks from those units and individuals in the firm whose working support is needed.
l Ultimately, managing incremental changes in the culturefrom ‘the way we always do things’ to ‘the way we need to do things to be successful’ and to make the marketing strategy work.
The potential importance of internal marketing to relationship marketing strategies, to strategic alliances, to competitive differentiation, to delivering superior service quality and above all to effective marketing implementation is underlined by the growing emphasis placed by companies on this issue. Nonetheless, studies suggest that many organisations reveal an ‘inadequate’ state of internal marketing – they cannot deliver their brand propositions, for example, because of lack of investment in the internal company marketplace (Marketing Week, 2003).
Certainly, it remains true that internal marketing means very different things in different companies and different situations. If we are to evaluate the potential contribution of internal marketing to building and implementing our competitive strategy and achieving our chosen position in the market, then we need to consider such issues as the following:
l the sources of internal marketing theory;
l the types of internal marketing practice in companies;
l how internal marketing can be planned as part of our competitive strategy; and
17.1
l the implication for other significant relationships such as the potential partnership between marketing and human resource management within organisations to achieve the effective implementation of marketing strategies.
However, first we place internal marketing in the context of strategy implementa- tion, and the challenge that execution poses for marketing managers. Our view of internal marketing is that it provides a model to facilitate a company’s effective execution of marketing strategies.
The strategy implementation challenge in marketing
Achieving more effective implementation or execution of marketing strategies remains a high priority for many organisations, because of the long history of strategy implementation failures which they may have experienced. For example, on the general front, Miller (2002) suggests that organisations fail to implement more than 70 per cent of their new strategic initiatives.
In fact, there are many pitfalls faced in moving from strategies and plans to effect- ive implementation and the changes that are usually involved for an organisation, its people and its partners. One listing of implementation pitfalls likely to resonate with managers’ experiences identifies the following issues:
l Strategic inertia– things never get started because executives resist change or fail to give it priority.
l Lack of stakeholder commitment – not having everyone on board, particularly at middle management levels, where progress can be blocked.
l Strategic drift – a lack of focus on where the strategy should end up, leading to failure to reach that destination.
l Strategic ‘dilution’ – an absence of strong drive behind the strategy means that managers give more priority to operational decisions than strategic goals.
l Failure to understand progress – not having the appropriate metrics to monitor progress towards strategic goals.
l Initiative fatigue – too many ‘top priority’ projects lead to cynicism and inadequate emphasis on the strategy.
l Impatience – expecting results too quickly, and giving up when the reality is slower.
l No celebrating success – failing to recognise and reward milestones that lead towards the strategic goal (Freedman, 2003).
In fact, there is a strong argument that much of the implementation problem comes down to the fact that generally managers are trained to plan, not to execute, and frequently are judged on their capabilities for managing day-to-day operations rather than strategic initiatives. The problem is likely to be worse when execution is seen as a low-level responsibility in the organisation (Hrebiniak, 2006). In fact, the
reality is that strategy and implementation are interdependent – strategic choices should be linked to implementation capabilities, and implementation capabilities should be developed in line with strategic imperatives, and the dichotomy between strategy and implementation is false and unproductive (Cespedes and Piercy, 1996).
Nonetheless, the tendency to separate strategy from implementation remains in organisations and creates obstacles and challenges in executing strategic initiatives.
Hrebiniak (2006) draws on a range of research studies and discussions with managers to identify the following factors as the top obstacles to effective strategy execution:
l Inability to manage change effectively and overcome resistance to change– managing change well is vital to effective strategy implementation. Nonetheless, where change impacts on corporate culture, then moving too fast may be dangerous.
l Poor or vague strategy – good implementation capabilities cannot compensate for a strategy which is weak or ambiguous. Strategy drives execution, and if strategy is unclear or weak then implementation is irrelevant.
l Not having guidelines or a model to guide strategy implementation efforts – managers want a logical model to guide implementation efforts and actions, particularly in translating strategic imperatives into practical actions.
l Poor or inadequate information sharing among individuals/units responsible for strategy execution– poor sharing of information or poor knowledge transfer and unclear responsibility and accountability make it unlikely strategy implementa- tion will be effective.
l Trying to execute a strategy that conflicts with the existing power structure– working against the power structure presents a major obstacle to implementation effectiveness, and underlines the importance of gaining the support of the influential in the organisation and forming coalitions to share implementation responsibility.
l Unclear responsibility or accountability for implementation decisions or actions – lack of clarity in responsibility for implementation and the achievement of measurable progress presents another obstacle to effective implementation.
Similarly, it has been suggested that:
One key reason why implementation fails is that practicing [sic]executives, managers and supervisors do not have practical, yet theoretically sound, models to guide their actions during implementation. Without adequate models, they try to implement strat- egies without a good understanding of the multiple factors that must be addressed, often simultaneously, to make implementation work.
(Alexander, 1991) While it is not a complete answer to all these obstacles, internal marketing provides us with a set of tools to address some of the major barriers faced to the effective implementation of marketing strategies, and managing the associated organisa- tional changes. It provides us with a model for structuring and managing the imple- mentation process, defining responsibilities, evaluating progress, and managing the cross-functional relationships important to strategy execution.
17.2 The development of internal marketing
Conventional training and development of marketing executives, quite reasonably, focuses primarily on the external environment of customers, competitors and mar- kets, and the matching of corporate resources to marketplace targets. The argument we now present is that, while analysing markets and developing strategies to exploit the external marketplace remains quite appropriately a central focus, it is frequently not enough on its own to achieve the effective implementation of marketing strategies. In addition to developing marketing programmes and strategies aimed at the external marketplace, in order to achieve the organisational change that is needed to make those strategies work, there is a need to carry out essentially the same process for the internal marketplacewithin companies.
That marketplace is made up of the people, the culture, the systems, the pro- cedures, the structures and developments inside the company, whose skills, resources, participation, support and commitment are needed to implement marketing strategies.
Indeed, the internal marketplace may increasingly extend to include our partners in alliances and network organisations.
It seems that the reality in many organisations is that often an implicit assump- tion is made by executives that marketing plans and strategies will ‘sell’ themselves to those in the company whose support and commitment are needed. When made explicit in this way, it is apparent that this is just as naive as making similar assumptions that, if they are good enough, products will ‘sell themselves’ to external customers. It is often surprising that those same executives who have been trained and developed to cope with behavioural problems – like ‘irrational’ behaviour by consumers and buyers, or the problems of managing power and conflict in the distribution channel, or the need to communicate to buyers through a mix of communications vehicles and media, or the problems of trying to outguess competitors – have taken so long to arrive at the conclusion that these same issues have to be coped with inside the company. Real commitment to strategic market- ing must involve a managerial role of creating the conditions necessary to permit strategic change to happen.
What we are calling strategic internal marketing here has the goal of developing a marketing programme aimed at the internal marketplace in the company that parallelsand matchesthe marketing programme aimed at the external marketplace of customers and competitors. This model comes from the simple observation that the implementation of external marketing strategies implies changes of various kinds within organisations – in the allocation of resources, in the culture of ‘how we do things here’, and even in the organisational structure needed to deliver market- ing strategies to customer segments. In practical terms, those same techniques of analysis and communication, which are used for the external marketplace, can be adapted and used to market our plans and strategies to important targets within the company. The goals of the internal marketing plan are taken directly from the implementation requirements for the external marketing plan, and the objectives to be pursued.
This is not as radical as it may at first seem. The marketing literature traditionally displayed attempts to link the marketing concept to the ‘human resource concept’
(e.g. Cascino, 1969; Dawson, 1969) and attention has been given specifically to the interaction between the human and organisational context and the effectiveness of marketing (Arndt, 1983). Other evidence relating to the impact of the internal mar- ket on marketing effectiveness has focused on various aspects of the intervention of organisational issues as a determinant of marketing strategies rather than a result of them: Leppard and MacDonald (1987) attempted to relate the effectiveness and appropriateness of marketing planning to the different stages of organisational evolution; John and Martin (1984) have analysed the credibility and use of market- ing plans in terms of characteristics of the surrounding organisational structure;
Cunningham and Clarke (1976) studied product managers as self-serving manipu- lators of targets and marketing information; Deshpandé (1982) and Deshpandé and Zaltman (1984) attempted an analysis of the cultural context of marketing manage- ment and commented on the lack of a marketing theory of culture; while Bonoma (1985) commented on the problems of a lack of ‘marketing culture’ in the specific context of implementation obstacles. In a similar way, Ruekert and Walker (1987) studied the interaction between marketing and other functional units and the role of marketing in implementing business strategies.
While this focus on the significance of various dimensions of organisational context provides a foundation, the most specific attention given to acting on the organisational environment through internal marketing, to achieve marketing goals, is found in the services literature. One of the earlier conceptualisations of the employee as ‘internal customer’ was provided by Berry (1981) in the context of bank marketing, and this theme has been pursued by others, and it is heavily oriented towards the identification of employee training and development needs to improve quality in the delivery of services. Similarly, the interdependence of internal and external markets has been stressed by Flipo (1986), who emphasised the need to overcome conflict and challenges to marketing strategies from the internal market, implicitly following Arndt’s (1983) conceptualisation of internal markets in a political economy model of marketing.
Perhaps the best-known conceptualisations of internal marketing come from the
‘Nordic School of Services’, where among other contributions Grönroos (1984, 1985) has written of the need for strategic and tactical internal marketing, and Gummesson (1987) has studied the use of internal marketing to achieve culture change in organisations. The practical application of these concepts is reflected in the literature of ‘customer care’ (e.g. Moores, 1986; Thomas, 1987; Lewis, 1989), which emphasises customer perceptions of quality, and the importance of fostering this perception through the training and development of personnel at the point of sale.
There is some established precedent for use of the terms ‘internal marketing’ and the ‘internal customer’. We see these developments as important for two main reasons.
First, the internal marketing paradigm provides an easily accessible mechanism for executives to analyse the organisational issues which may need to be addressed in implementing marketing strategies. Quite simply, concepts of marketing pro- grammes and targets are familiar to marketing executives and they are ‘comfortable’
with them. The second point is that the internal marketing model provides a lan- guage which actually legitimises focusing attention on issues like power, culture and political behaviour which appear quite often to be avoided by executives as some- how ‘improper’.
17.3 The scope of internal marketing
It follows from the emergence of the internal marketing paradigm from diverse con- ceptual sources that the practice of internal marketing and its potential contribution to marketing strategy are similarly varied. It is possible to consider the following
‘types’ of internal marketing, although they are probably not equal in importance:
l internal marketing that focuses on the development and delivery of high standards of service qualityand customer satisfaction;
l internal marketing that is concerned primarily with development of internal com- munications programmesto provide employees with information and to win their support;
l internal marketing which is used as a systematic approach to managing the adoption of innovationswithin an organisation;
l internal marketing concerned with providing products and services to users inside the organisation; and
l internal marketing as the implementation strategyfor our marketing plans.
Internal marketing and service quality
The original and most extensive use of internal marketing has been in efforts to improve the quality of service at the point of sale in services business like banking, leisure, retailing, and so on – the so-called ‘moment of truth’ for the services marketer. Some call this ‘selling the staff’, because the ‘product’ promoted is the person’s job as a creator of customer service and value. This tends to be seen in customer care training programmes and similar initiatives. These types of internal marketing programme are, in practice, essentially tactical and often restricted to the operational level of the organisation.
The logic is that it is apparent and obvious that marketplace success is frequently largely dependent on employees who are far removed from the excitement of creating marketing strategies – service engineers, customer services departments, production and finance personnel dealing with customers, field sales personnel, and so on.
As we noted earlier, these are all people Evert Gummesson (1990) called ‘part-time marketers’ – they impact directly and significantly on customer relationships, but are normally not part of any formal marketing organisation, nor are they typically within the marketing department’s direct control.
Indeed, US research suggests we should think more carefully about the impact of the organisation’s external communications on employees – as ‘advertising’s second audience’ (Gilly and Wolfinbarger, 1996). The chances are that employees are more aware and more influenced by our advertising than are our customers, so the suggestion is that we should use that awareness productively to deliver messages to employees.
There are a growing number of cases of companies whose service quality excel- lence has been driven by explicit attention to internal marketing. Southwest Airlines is the much-admired originator of the ‘no frills’ airline model, and has achieved not only outstanding profit performance in a difficult sector, but has also regularly won
17.3.1
industry awards for service quality and low levels of customer complaints. From the outset, Southwest’s mission statement said, ‘Above all, employees will be provided the same concern, respect and caring attitude within the organization that they are expected to share externally with every Southwest customer’. The company uses high employee morale and service quality to achieve excellent profitability. Tactics include offering employees a vision that provides purpose and meaning to the workplace, competing aggressively for the most talented people, providing skills and knowledge, but also emphasising teamwork and motivation, and ensuring that organisational management understands the internal customer. The effect is an integrated internal marketing approach that drives service quality. Southwest shows the positive impact of internal marketing on employees, external customers and performance. Southwest’s success is based in large part on its employees’ positive attitudes, high productivity and customer orientation. (Czaplewski et al., 2001).
It can be argued that there is no one ‘right’ strategy in any given product market situation, but there are good and bad ways of delivering market strategies, which determine if they succeed or fail. The critical issue is becoming the consistency between strategies, tactics and implementation actions. This suggests that real cul- ture change is a central part of the process of going to market effectively. At its simplest, the disgruntled employee produces the disgruntled customer. Bonoma (1990) summarises this point succinctly: ‘treat your employees like customers, or your customers will get treated like employees’.
However, it is apparent that successfully exploiting the linkage between employee and customer satisfaction may not always be straightforward. Research into the way in which customer satisfaction is measured and managed in British companies is revealing (Piercy, 1995). Studies suggest that:
1 There is a need to create clarity for all employees regarding customer service quality policies and customer satisfaction targets. It is not enough to pay lip-service to these ideals and to expect success in attaining them. The starting point must be to identify what has to be achieved in customer satisfaction to implement specific market strategies, and to position the company against the competition in a specific market. It is unlikely that achieving what is needed will be free from cost. We need to take a realistic view of the time needed and the real costs of implementation in aligning the internal market with the external market.
2 Internal processes and barriers suggest the need to consider both the internal and external markets faced in implementing customer satisfaction measurement and management systems. To ignore the internal market is to risk actually damaging the company’s capacity to achieve and improve customer satisfaction in the external market. If, for example, management uses customer feedback in a negative and coercive way, then it may reduce employee enthusiasm for customer service, or create ‘game-playing’ behaviour where people compete for ‘Brownie points’ in the system at the expense of both the company and the customer. This said, we have also to recognise not just the complementarity between internal and external markets, but the potential for conflict of interest. Achieving target levels of customer service and satisfaction may require managers and employees to change the way they do things and to make sacrifices they do not want to make.
This may take more than simple advocacy or management threat.
3 Related to the above argument, recognising the internal market suggests that there may be a need for a structured and planned internal marketing programme to achieve the effective implementation of customer satisfaction measurement and management. This has been described elsewhere as ‘marketing our customers to our employees’ (Piercy, 1995), and can be built into the implementation process to address the needs of the internal customer and to confront the types of inter- nal processual barrier we have encountered.
4 Also related to the recognition of the internal market is the need to question the relationship between internal and external customer satisfaction. This can be discussed with executives using the structure shown in Figure 17.1. This suggests four possible scenarios that result when internal and external customer satisfaction are compared:
(a) Synergy, which is what we hope for, when internal and external customer satisfaction are high, and we see them as sustainable and self-regenerating.
As one hotel manager explained it: ‘I know that we are winning on customer service when my operational staff come to me and complain about how I am getting in their way in providing customer service, and tell me to get my act together!’ This is the ‘happy customers and happy employees’ situation, assumed by many to be obvious and easily achieved.
(b) Coercionis where we achieve high levels of external customer satisfaction by changing the behaviour of employees through management direction and control systems. In the short term this may be the only option, but it may be very difficult and expensive to sustain this position in the longer term, and we give up flexibility for control.
(c) Alienation is where we have low levels of satisfaction internally and exter- nally, and we are likely to be highly vulnerable to competitive attack on service quality, and to the instability in our competitive capabilities produced by low staff morale and high staff turnover.
Figure 17.1 Customer satisfaction – the internal market and the external market
(d) Internal euphoriais where we have high levels of satisfaction in the internal market, but this does not translate into external customer satisfaction – for example, if internal socialisation and group cohesiveness actually shut out the paying customer in the external market. These scenarios are exaggerated, but have provided a useful way of confronting these issues with executives.
5 A critical mistake is to ignore the real costs and challenges in sustaining high ser- vice quality levels and the limitation which may exist in a company’s capabilities for improving customer satisfaction levels. While advocacy is widespread and the appeal is obvious, achieving the potential benefits requires more planning and attention to implementation realities than is suggested by the existing conven- tional literature.
Internal marketing as internal communications
As well as customer care training and a focus on service quality, internal marketing may also be seen as internal communications. In fact, the largest growth in this area has been investment by companies in broader internal communications pro- grammes of various kinds – where ‘communications’ is understood as providing our employees with information and delivering messages which support the busi- ness strategy. Athough up-to-date figures are scarce, in 2001 one study found that the Fortune Top 200 ‘most admired’ companies spent an average of $1.6 million (£1.1 million) each on internal communications (Marketing Weekly, 2001). The goal of internal communications is normally to build both understanding and com- mitment. Often, these activities tend to be a responsibility of the human resource department.
One industry study (Pounsford, 1994) suggested that managers saw the role of internal communications in the following terms and with the following advantages, as shown in Table 17.1.
The manifestations of this form of internal marketing include: company news- letters, employee conferences and training, video-conferencing, satellite TV trans- missions, interactive video, e-mail, and so on. Increasingly, creating dialogue within an organisation and encouraging employee involvement can involve approaches like web-based internal blogs (Hathi, 2007). These delivery mechanisms are import- ant, but are in danger of obscuring an important point. Instructing and informing people about strategic developments is not the same as winning their real involve- ment and participation. Communication is a two-way process – listening as well as informing. This may be why internal communications appear ineffective in some companies.
There is a risk that internal communications programmes become about telling and persuading, not listening. This may be said to be internal selling not internal marketing.
An interesting illustration of the gains from two-way communications comes from Dana Corp., the US car parts manufacturer. At that company, the ‘suggestions box’
is described by the CEO as ‘a core part of our value system’. Employees contribute ideas to improve operations and service, and 70 per cent are actually used. Dana is an example of an organisation where employees have taken a share of the responsib- ility for keeping the company competitive. This underlines the important practical
17.3.2
difference between producing company newsletters and taking internal commun- ications seriously.
Internal marketing and innovation management
Somewhat different is the use of the internal marketing framework to place, and gain use of, innovations like computers and electronic communications in the IT field. These applications use tools of market analysis and planning to cope with and avoid resistance and to manage the process of change. This may be particularly important where the effectiveness of a marketing strategy relies on the adoption of new technologies and ways of working. The argument here is that people in an organisation are ‘customers’ for our ideas and innovations. This view encourages us to consider:
l looking at customer needs – even in hierarchical companies people are not robots waiting to be told what to do, so making the effort to understand their needs increases the likely effectiveness of innovation;
l delivering the goods– the needs of customers tell us what matters most to them;
l raising unrealistic expectations– is as dangerous with internal customers as it is with external customers (Divita, 1996).
An example of a company using this approach is OASIS, the IT consultancy firm, which has a well-developed system for the internal marketing of IT applications.
The use of laptop computers by a geographically dispersed salesforce in one com- pany was guided by the analysis of the ‘internal market’ using the classic diffusion Table 17.1 The role of internal communications
Perceived role Illustrative comments
Team building Educate employees about breadth and diversity of the organisation.
Assist cooperation between divisions.
Damage control Prevent managers getting communications wrong.
Suppress bad news.
Counter pessimism.
Morale builders Build confidence.
Increase motivation.
Involvement Represent employee opinions upwards.
Create channel to share problems/values.
Increase people recognition.
Change management Increase understanding of the need for change.
Test new ideas.
Help people relate to rapidly changing environment.
Goal-setting Help organisation steer in a coordinated direction.
Provide focus on corporate goals.
Generate support for policies.
17.3.3
of innovation model to identify opinion leaders as key influencers in the adoption process. Similarly, the BT problem of marketing its information systems and services to its internal customers was addressed through the same principles used to market solutions to the organisation’s external customers: segmentation, targeting, and positioning IS solutions to the internal customer base (Morgan, 2004).
Internal markets instead of external markets for products and services
The terms ‘internal market’ and ‘internal marketing’ have been applied to internal relationships between different parts of the same organisation – making them sup- pliers and customers as a way of improving the focus on efficiency and value. This is common in total quality management programmes, and in wider applications like the reform of the UK National Health Service.
This can lead to some interesting issues. For example, work with the R&D division of a major brewery suggested that the internal customer issues were really about the type and degree of dependence between the internal supplier (in this case the provider of R&D solutions to process problems in the brewery) and the internal customer (here the production and sales units of the brewery), which in turn reflects the freedom of either internal supplier or customer to deal with third parties outside the company.
Strategic internal marketing
Lastly, we note the use of strategic internal marketing (SIM) as an approach to the structured planning of marketing strategy implementation, and analysis of under- lying implementation problems in an organisation. This form of internal marketing is a direct parallel to our conventional external marketing strategy and marketing pro- gramme, which aims at winning the support, cooperation and commitment we need inside the company, if our external market strategies are to work. This is a somewhat different view of internal marketing compared with those discussed above, although it is informed by the other types of internal marketing which have a longer history.
The key underlying issue here is the organisational and cultural change needed to make marketing strategies happen.
A structure for an internal marketing programme is shown in Figure 17.2. The underlying proposal is that the easiest way to make practical progress with this type of internal marketing, and to establish what it may achieve, is to use exactly the same structures that we use for planning external marketing. This suggests that we should think in terms of integrating the elements needed for an internal marketing mix or programme, based on our analysis of the opportunities and threats in the internal marketplace represented by the company with which we are working. This is shown in Figure 17.2 as a formal and legitimate part of the planning process.
In fact, in this model, we take the internal marketing programme not only as an outputof the planning process and the external marketing programme, but also as an input, i.e. constraints and barriers in the internal marketplace should be con- sidered and analysed as a part of the planning at both strategic and tactical levels.
For the proposals to make sense in practice, we rely on this iterative relationship.
17.3.4
17.3.5
The starting point for this approach is that the marketing strategy and the plan- ning process may define an external marketing programme in the conventional way, and less conventionally the internal barriers suggest that some external strategies are not capable of being implemented in the timescale concerned, and we have to feed back into the planning process the message that some adjustments are needed while there is still time to make those adjustments to plans.
More positively, however, it is equally true that our analysis of the internal market may suggest new opportunities and neglected company resources which should be exploited, which in turn impact on our external marketing plan and thus on the planning process. What we are trying to make explicit for executives is the need to balance the impact of both internal and external market attributes on the strategic assumptions that they make in planning.
The structure of such an internal marketing programme can be presented in the following terms:
l The product: At the simplest level the ‘product’ consists of the marketing strateg- ies and the marketing plan. Implied, however, is that the product to be ‘sold’ is those values, attitudes and behaviours which are needed to make the marketing plan work effectively. These hidden dimensions of the product may range from increased budgets and different resource allocations, to changed control systems and criteria used to evaluate performance, to changed ways of handling customers at the point of sale. At the extreme the product is the person’s job – as it is redefined and reshaped by the market strategy so it will make people’s working lives more enjoyable. There may also be negatives – changes people will not like, which brings us to price.
l The price: The price element of the internal marketing mix is not ourcosts; it is concerned with what we are asking our internal customers to ‘pay’ when they buy in to the product and the marketing plan. This may include the sacrifice of other projects which compete for resources with our plan, but more fundamentally the personal psychological cost of adopting different key values, and changing the way jobs are done, and asking managers to step outside their ‘comfort zones’ with new methods of operation. The price to be paid by different parts of the internal marketplace, if the marketing plan is to be implemented successfully, should not be ignored as a major source of barriers and obstacles of varying degrees of difficulty.
Figure 17.2 Internal and external marketing programmes
l Communications: The most tangible aspect of the internal marketing pro- gramme is the communications medium and the messages used to inform and to persuade, and to work on the attitudes of the key personnel in the internal mar- ketplace. This includes not only written communications, such as plan summaries and reports, but also face-to-face presentations to individuals and groups who are important to the success of the plan. Broadly, we should remember that to assume that simply ‘telling’ people will get them on our side is likely to be as naive inside the company as it is outside. We suggest it is important to consider the full range of communications possibilities and associated goals, as we would with external customers, and we should not forget to budget the time and financial costs that may be associated with these activities. At the simplest level, the purpose of our internal marketing communication may be served by a video presentation explaining things, or a roadshow taking the message out to the regions and the distributors. But real communication is two-way – we listen, we adapt, we focus on our audience’s problems and needs.
l Distribution: The distribution channels element of the mix is concerned with the physical and socio-technical venues at which we have to deliver our product and its communications: meetings, committees, training sessions for managers and staff, seminars, workshops, written reports, informal communications, social occasions, and so on. Ultimately, however, the real distribution channel is human resource management, and in the lining up of recruitment, training, evaluation and reward systems behind marketing strategies, so that the culture of the com- pany becomes the real distribution channel for internal marketing strategies. In fact, as long ago as the 1990s, Ulrich (1992) made some radical points about this, which are worth confronting. He said that if we really want complete customer commitment from our external customers, through independent, shared values and shared strategies, then we should give our customers a major role in our:
– staff recruitment and selection decisions;
– staff promotion and development decisions;
– staff appraisal, from setting the standards to measuring the performance;
– staff reward systems, both financial and non-financial;
– organisational design strategies; and – internal communications programmes.
In effect this means using our human resource management systems as the inter- nal marketing channel, thus taking the internal and external customer issue to its logical conclusion (see Section 17.5.2 below). Companies developing such approaches in the US included General Electric, Marriott, Borg-Warner, DEC, Ford Motor Company, Hewlett-Packard and Honeywell.
For example, a simple internal marketing analysis for two companies is illustrated in Tables 17.2 and 17.3. These examples concern a key customer account strategy in a financial services organisation and a vertical marketing strategy in a computer com- pany. In both cases we can see a ‘formal’ level of internal marketing which concerns the marketing plan or strategy, but also levels of internal marketing concerned with the informal organisation and the processes of decision making and change inside the company. In the computer company, vertical marketing is not a simple strategy
Internal market targets (1) Business unit management (2) Product group management (3) Salesforce
Internal marketing Internal marketing levels
programme Product
Price
Communications
Distribution
Formal
Marketing plan to attack a small industry as a special vertical market, rather than grouping it with many other industries as at present, with specialised products and advertising Costs of developing specialised
‘badged’ or branded products for this industry
Written plan
Presentations to key groups
Business unit board meeting Product group board meeting Main board meeting
Salesforce conference
Informal Separation of resources and control of this market from the existing business unit
Loss of control for existing business units
Support for plan by key board members gained by pre- presentation ‘softening up’ by planners
Informal meetings
Processual
Change from technology-oriented management to recognition of differences in buyer needs in different industries – the clash between technology and customer orientation
Fear of ‘fragmentation’ of markets leading to internal structural and status changes
Action planning team formed, including original planners, but also key players from business unit and product group – rediscovering the wheel to gain ‘ownership’
Advertising the new strategy in trade press read by company technologists and managers Joint seminars in applying IT to this industry, involving business unit managers and key customers Joint charity events for the industry’s benevolent fund
Alamy/Andre Jenny
Table 17.3 Internal marketing in a financial services organisation Internal market targets (1) Branch managers of retail banks and finance company offices
(2) Divisional chief executives for the banks and the finance
Internal marketing Internal marketing levels
programme Product
Price
Distribution
Communications
Formal
Integration of selling efforts around key customers, as a key marketing strategy
Branch profit /commission from independent selling to smaller customers, to be sacrificed to build long-term relationships with key accounts
Written strategic marketing plans
Sales conferences
Formal presentation by chief executive at conferences Written support from chief executive
Redesign market information systems to be more up-to-date
Informal
Head office group-based planning and resource allocation with greater central control Loss of freedom/
independence of action in the marketplace Potential loss of commission-earning power
Written communications Informal discussion of chief executive’s ‘attitude’
Redesign of commission and incentives systems in both companies
Sponsorship by chief executive – ‘the train is now leaving the station, you are either on it or . . .’
(written memo sent to all branches)
Processual
Change in the individual manager’s role from independent branch entrepreneur to group-based collaborator
Time, effort and psychological
‘pain’ of collaborating with former
‘competitors’ with different ethnic/educational/professional backgrounds – the ‘banker versus the hire purchase salesman’
Fear that the other side would damage existing customer relationships
Joint planning/problem-solving teams for each region – built around central definition of target market segments Combining/integrating management information systems, and changing its structure to reflect new segments Social events
Joint training course
Redefinition of markets and target segments
because it is linked to changing resource allocation and departmental responsibili- ties, and also to a change of management culture. In the financial services company, a key account strategy involves not simply a new marketing direction, but a change in line management freedom and ways of doing business. These cases are indicat- ive of the types of implementation and change problem that can be addressed by internal marketing.
It also follows that we can use conventional market research techniques inside the company to get to grips with who has to change, in what way, how much and what the patterns are in our internal marketplace.
Finally, as with the external marketing programme, we should not neglect the importance of measuring results wherever possible. This may be in terms of such criteria as people’s attitudes towards the market strategy and their commitment to putting it into practice, or customer perceptions of our success in delivering our
17.4
promises to them – or, perhaps more appositely, our lack of success as presented by complaints, and so on.
Again, in exact parallel with the conventional external marketing plan, our inter- nal marketing programmes should be directed at chosen targets or segments within the market. The choice of key targets for the internal marketing programme should be derived directly from the goals of the external marketing programme, and the types of organisational and human changes needed to implement marketing strategies.
The internal marketplace may be segmented at the simplest level by the job roles and functions played by groups of people, e.g. top management, other departments and marketing and sales staff.
Alternatively, we might look beyond job characteristics to the key sources of sup- port and resistance to the external marketing plan which are anticipated, to identify targets for reinforcement, or for persuasion and negotiation. Perhaps at the deepest level we might choose our targets on the basis of the individual’s attitudes towards the external market and customers, and the key values that we need communicated to external customers, together with people’s career goals.
It can be seen, therefore, that internal marketing can be used in different ways, and that the role may vary from developing customer care and service quality pro- grammes to improve and maintain service standards and customer satisfaction at the point of sale, through to internal communications programmes, to providing a structured approach to planning the full implementation of marketing strategy. We noted also that internal marketing may be of particular importance in the alliance- based network organisation.
Planning for internal marketing
There are a variety of situations when strategic thinking about competitive strategy should address the possible role of internal marketing:
l where performance in critical areas of customer service are unsatisfactory and not sufficient to establish a strong competitive position;
l where customer satisfaction is consistently low and complaints suggest that the underlying causes are employee attitudes and behaviour, rather than poor product standards or inadequate support systems;
l when market conditions and customer requirements have shifted, so that con- tinuing the standards and practices of the past will no longer bring success;
l when new marketing strategies require new skills and ways of behaving – a
‘stretch’ strategy;
l when bridging the gap between planning and implementation has proved prob- lematic in the past.
In such situations, we may wish to consider an internal marketing strategy with the following components:
l Internal market orientation – recently attention has been given to internal market orientation as the foundation for success, in the same way that external
market orientation has been linked to the effective implementation of external marketing strategies. The logic is that internal market orientation increases the responsiveness of a market-oriented company to external market conditions, because it allows management to better align external market objectives with internal capabilities. However, this symmetry relies on assessment of internal market orientation as a precursor to action (Gounaris, 2006). Lings and Greenley (2005) propose that assessing internal market orientation should encompass directly parallel measures to those associated with external market orientation, thus internal market orientation involves the generation and dissemination of intelligence pertaining to the wants and needs of employees, and the design and implementation of appropriate responses to meet those wants and needs.
l Internal market strategy: In broad terms what is needed to gain the successful implementation of an external market strategy. It is here that we need to confront the real implications of our external market strategy for the internal customer – the decision-makers, managers, operatives and others without whose support, cooperation and commitment the external strategy will fail. This is the most critical question in the whole internal marketing exercise. It may be worth consulting the people directly concerned – doing internal market research. It is certainly worth incorporating some diversity of opinion. As we learn more, we can come back and redraft and rethink our conclusions here. It is here that we should take a view of what it is likely to cost us to achieve these things and the deadline for achieving them to implement the external marketing strategy on time.
l Internal market segmentation is about identifying the targets in the internal marketplace around which we can build internal marketing programmes, which are different in what we have to achieve and how we are going to do it. This may not be straightforward, but is the route to real insights into the internal market problem and effectiveness in how we cope with that problem. The most obvious way of identifying internal segments may be by role or function, or location, and this may be sufficient. It might be more productive to think of who are the innovators and opinion leaders who will influence others. We might approach this more directly in terms of the role that different people will play in implementing the external strategy and the problems they may face in this, or simply how much different people will have to change to get the external strategy to work.
l Internal marketing programmesspecify which internal marketing programmes will be needed in each internal market segment to achieve the objectives we have set. In each area we need to collect our thoughts about the rational issues but also the human and cultural issues. To us the product may be a new marketing plan that we need to inform people about (internal marketing communications) through formal presentations (internal marketing distribution), adjusting com- mission and evaluation systems as need be (internal marketing price). To the internal customer, the same plan may be about disruption and threat (product), loss of initiative and status (price), imposed without consultation by manage- ment (communication) and rigorously ‘policed’ through coercion (distribution).
If internal marketing is about anything, it is about confronting and coping with this conflict. It is this confrontation which will drive us away from thinking about internal marketing as simply writing customer care brochures and doing great
17.5
plan presentations, towards coping with the human and organisational realities of what strategic change involves and costs. This is also the stage to take a look at the cost implications of what we now see to be necessary in our internal marketing:
does the internal marketing cost mean that the external market strategy is no longer attractive? Do we have to account for internal marketing cost which is more than we expected, but bearable? Do we have to change the external strategy to reduce the internal marketing cost? Are there cheaper ways of achieving the critical internal marketing goals?
l Internal marketing evaluation– what we can measure to see if we are getting there, ideally quantified and objective: reduced customer complaint rates or higher customer satisfaction scores. This may be ambitious and we should not abandon important objectives because they are difficult to evaluate – we may have to settle for a subjective or qualitative evaluation, which is better than nothing.
However, the possible problems to be anticipated in implementing internal marketing strategy programmes effectively should not be underestimated. For example, Don Schultz (2004) suggests that many, if not most, internal marketing approaches fail for the following reasons:
l Lack of financial measures of internal marketing success– the goal should be to link measurable behavioural changes to financial returns for the business.
l Weak management cohesion– the organisational location of responsibility for internal marketing is confused and those responsible have no authority or respon- sibility for the people whose behaviours they are trying to change.
l Lack of senior management support – internal marketing is not perceived as a senior management issue, but the concern of middle managers with all the inherent problems of turf wars and organisational politics.
l No connection between internal stakeholders and external customers– the difficulty for employees in non-customer-facing roles to understand how internal marketing affects them, or how they affect the external customer.
l Lack of a management calculus – there are no clear ideas about the value or return of internal marketing and an effective internal marketing planning system.
Schultz suggests that we should apply the lessons of integrated marketing commun- ications in internal as well as external marketing. However, the issue of integration has yet further practical aspects, as we see in the next section of the chapter.
Cross-functional partnership as internal marketing
Rationale for cross-functional partnership
Perhaps the greatest contemporary challenge for internal marketing is the achieve- ment of the effective cross-functional partnerships required to deliver superior cus- tomer value. Two things are increasingly apparent. First, delivering value results from a complex set of processes and activities inside the organisation and possibly
17.5.1
also in a network of organisations in a strategic alliance (see Chapter 16). Many of the processes of defining, creating and delivering value to customers are not ‘owned’
or directly managed by marketing or sales departments. Second, sophisticated cus- tomers will not accept anything less than seamless delivery of value in their terms – problems in the integration of processes in the seller’s organisation are the seller’s problem, not the buyer’s (Hulbert et al., 2003).
The integration of the whole organisation around the drivers of customer value has become an imperative – all activities must work together, fit together, and be seen to appear together by the customer. Nonetheless, many organisations appear to struggle with this imperative. The model in Figure 17.3 provides a framework for analysing the challenges in identifying and integrating the complex of functional specialisms and internal and external resource centres that impact on the operation of the value processes of value identification, creation and delivery (however these processes are labelled in a particular company).
We consider briefly the nature of each of the interfaces between marketing and other functional groups, which may provide internal marketing targets for internal alliance building.
Marketing and human resource management
It is now a considerable time since Glassman and McAfee (1992) called for the full-scale integration of marketing and human resource management departments.
Their logic was that the two functions were both focused on ‘people issues’ (the one on customers and the other on employees), yet seemed unable to integrate their activities effectively. However, HRM in many organisations has moved towards a
Figure 17.3 Cross-functional contribution to value processes
17.5.2
‘strategic human resource management’ approach, with a primary concern for align- ing the skills and capabilities of employees and managers with the requirements of business strategy. The processes usually managed in HRM are extremely relevant to the goals of marketing strategy: recruitment and selection, evaluation and reward system, training and development, and other drivers of corporate culture. There is an opportunity for marketing to work with HRM in identifying the key elements of employee motivation, and the development of training and development pro- grammes – but particularly in providing the research capabilities to evaluate the internal marketplace including employees, channel partners and customer service providers (Schultz, 2002).
Some companies are making large efforts to ensure that marketing and HRM work together to ensure that they communicate and deliver brand values to both internal and external audiences. The ‘Everything is Possible’ campaign at H-P Invest (formerly Hewlett-Packard) is aimed to be as inspirational for staff as it is for cus- tomers. Allied-Domecq sees its ‘people brand’ as one of its nine core brands. Some companies, such as Allied-Domecq and Sainsbury’s, have appointed employer brand managers to bridge the gap between HR and marketing. Others have created jobs with titles like ‘great place to work manager’ (at B&Q), or ‘head of great company’
(at Microsoft) (Simms, 2003).
An internal marketing agenda concerned with the contribution of HRM to value processes might include the following issues:
l The better alignment of employee and manager training and development pro- cesses with customer priorities.
l Tracking and comparing employee satisfaction and customer satisfaction to understand the relationship between them.
l Working on the links between customer satisfaction and retention issues, and employee training, reward and evaluation processes.
l Looking at the way in which internal communications approaches support external market strategies. (Piercy, 2002)
The importance of the marketing/HRM link is such that in many situations major customers are increasingly playing a direct role in participating in the operation of suppliers’ internal HRM processes, such as recruitment into sales and service jobs.
Indeed, more operational views of the interface between marketing and HRM issues focus on the link between HRM and relationship marketing strategies (Perrien et al., 1993; Perrien and Ricard, 1995), and the need to direct HRM policies to focus on customer service and customer value (Cripe, 1994; Gubman, 1995). Conversely, Sheth and Mittal (1996) have examined the use of HRM skills in the management of customer expectations. Nonetheless, research suggests that the marketing/HRM rela- tionship is frequently associated with conflict and poor interdepartmental conflicts with a detrimental impact on strategy implementation (Chimhanzi, 2004).
Marketing and finance and accounting
The conflict between marketing and finance/accounting in the past has reflected the goal of accounting to cut costs and to increase reported short-term profit, compared
17.5.3
with the objective of marketing to gain long-term investment in brands and market share. Conflicts have also centred on different views of pricing – the accounting model of cost-plus pricing produces very different outcomes from a marketing model of price based on customer value. However, these disputes have been rendered largely obsolete by two important factors. The first factor is the overwhelming pres- sure that marketing is under in a growing number of companies to ‘prove’ its added value to the company and its shareholders (Ambler, 2003). Many of the metrics which marketing most needs to establish its shareholder value creation can only be achieved through collaboration with finance and accounting (Farris et al., 2006). The second factor is the increasingly strategic view of business being taken by finance and accounting executives, which is likely to reduce the conflicts with marketing and sales. Moves towards internal alliances between marketing and finance/accounting are likely to be important in achieving the speed of change and market responsive- ness required by modern customers.
Marketing and sales integration
In Chapter 15 we examined the growing role of the sales organisation in strategic customer management, and as a change agent inside the company. Nonetheless, for many companies the relationship between marketing and sales remains problem- atic. It has been noted: ‘The relationship between sales and marketing functions has persisted as one of the major sources of organizational conflict’ (Webster, 1997), and that ‘The marketing–sales relationship, whilst strongly interdependent, is reported as neither collaborative nor harmonious’ (Dewsnap and Jobber, 2000). For these reasons sales and marketing integration remains a high and very topical priority on the management agenda (Rouzies et al., 2005). This question merits more detailed consideration, since it appears to be frequently one of the most critical obstacles to marketing strategy implementation.
The conventional literature often assumes that marketing departments and sales organisations are a single organisational unit, but they are frequently quite distinct functions in companies. For example, in their 1998 study, Workman et al. suggest that ‘it is highly significant that more than thirty years after the call to integrate sales and marketing activities under a CME [Chief Marketing Executive], we find no firms that had adopted this recommendation.’ In fact, part of the reason is that marketing and sales should not be the same because the functions they perform are different (Shapiro, 2002). However, the new market conditions and strategic sales role we described in Chapter 15 place considerable importance on cross-functional collaboration and cooperation, which may align poorly with the traditional need for functional separation based on task specialisation.
What is far from well understood is what conflicts or elements of conflict actually have negative consequences for business performance and which do not (Deshpande and Webster, 1989). While marketing and sales exist alongside each other as business functions, there are likely to be fundamental differences between them in perspect- ive and priorities. However, in examining the coordination of these differentiated functions, Cespedes (1996) highlights an important paradox: ‘the solution is notto eliminate differences among these groups’, but that ‘paradoxically, there is virtue
17.5.4
in separating and distinguishing functional roles in order to improve the cross- functional coordination needed’ (Cespedes, 1995). The suggestion is that differences between marketing and sales may actually provide a much-needed breadth of per- spective and richness of market understanding because of the differences between the functions. As collaboration and cooperation between marketing and sales grow in importance, this paradox provides an important insight – teamwork and joint-working have to accommodate differences in perspective and understanding, and to focus on enhanced business performance not simply smooth team operation or harmonious interrelationships.
The marketing/sales interface
To other functions in the business, the marketing and sales functions look alike – they are both focused on the customer and the market – but aligning sales and marketing has proved difficult in practice and is likely to be even more difficult in the future. The importance of the issue is quite simply that poor cooperation between marketing and sales will lead to inconsistent and weak strategy, coupled with flawed and inefficient implementation (Shapiro, 2002).
When the customer base was homogeneous, simple and dominated by mid-sized accounts, marketing operated as a strategic function concentrating on product strat- egy, segmentation and competitive positioning, while sales executed the strategy in the field, selling to end users and distributors. The easy separation of sales and marketing has come to an end in markets dominated by very large accounts with sophisticated buying teams, and multi-channel strategies to reach medium and small accounts. With the largest accounts, marketing and sales need to make joint decisions to achieve an integrated offer that meets the standards required by pur- chasers who can dictate many terms to their suppliers. Marketing executives need to acquire new understanding of individual customers, key account needs, and the sales task – the reality is that ‘As power shifted from the seller to the buyer, it also shifted from headquarters to the field’ (Shapiro, 2002). With multi-channelling (e.g. an Internet channel, telesales, direct marketing and personal selling working alongside each other), effectiveness and profitability also require shared sales and marketing decisions on channel strategy and execution (Shapiro, 2002).
While relatively little empirical evidence is available, executive opinion and anecdote suggest the relationship between marketing and sales remains problematic in many companies, with conflict surrounding such issues as the division of respons- ibilities and demarcation lines, ownership of customer information, competition for resources, control of price, and the short-term orientation of sales versus the long-term orientation of marketing. Differences in reward systems (volume-based in sales and margin-based in marketing), information needs (geographically and customer-based in sales and product/brand oriented in marketing) and competencies underline the potential for conflict rather than collaboration between marketing and sales (Cespedes, 1993, 1994; Montgomery and Webster, 1997; Dewsnap and Jobber, 2000).
Underpinning the potential for marketing/sales conflict is what has been described as the existence of different ‘mindsets’ in marketing and sales – different perspectives on issues and approaches for addressing problems – which have been described as:
